A $20 Million Fraud Charge

Dawn Bennett’s career as a financial adviser came to a sudden halt last year after SEC Lawyers claimed that she was unfit for any role in the securities industry. Administrative Law Judge James E. Grimes agreed, barred her from the industry and ordered her to pay more than $4 million in penalties and disgorgement due to fraudulent conduct as a fund advisor.

According to civil and criminal charges filed by the SEC and the Justice Department, she started a brand new career as a Ponzi schemer briefly after being charged.

The Ponzi scheme is one of the oldest scams around in the world of financial fraud. The allegations against Bennett suggest a classic Ponzi scheme, in which the fraudster uses new money from investors to pay off those who bought in earlier to keep the scheme afloat. FBI Special Agent Keith A. Custer stated in an affidavit filed with the U.S. District Court for the District of Maryland that a review of her accounts showed activity consistent with a Ponzi scheme and misappropriation of investor funds.

He described a Ponzi scheme as a fraudulent investment, where the operator of the scheme solicits investors by promising high rates of return with little risk. The scheme operator then funds payments to the older investors through funds obtained through new investors. Typically, the operator of the scheme will use investment funds for purposes other than what was conveyed to the investors.

Bennett allegedly used inflated figures in her firm’s financial statements to attract investors. Special Agent Custer described how Bennett targeted elderly and unsophisticated investors, and cited emails where her customers told Bennett that they were investing all that they had with her. One trusting investor wrote “what you are managing is our sole security blanket, it would be a killer if for any reason an investment in your fine company would lead to any more losses than what our portfolio has experienced in the recent past.”

It is not unusual or surprising as this type of financial fraud occurs all too often with vulnerable individuals. Ponzi schemes inevitably collapse because there is never enough new money to keep the scam alive. The SEC filed civil charges based on alleged violations of the registration and antifraud provisions of the Securities Act and the Exchange Act antifraud provisions in §10(b). The Justice Department alleged both wire and bank fraud violations.